Limitations of RSI
1. False Signals in Sideways Markets: RSI can generate false signals in sideways or non-trending markets, leading to premature trade entries or exits.
2. Whipsaw Effect: Rapid oscillations in RSI readings can result in frequent buy and sell signals, increasing the likelihood of whipsaw trades.
3. Lagging Indicator: RSI relies on past price data, making it a lagging indicator that may not provide timely signals during fast-moving market conditions.
4. Sensitivity to Timeframe: RSI effectiveness can vary depending on the chosen timeframe, requiring adjustment and optimization for different trading strategies.
5. Overreliance Risk: Traders may become overly reliant on RSI signals, ignoring other important factors such as market fundamentals or macroeconomic trends.